Do you know if your business qualifies as research and development (R&D) for tax purposes? It can be difficult to define but read on to find out everything that you need to know.
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What does R&D tax credit do for me?
Small companies that are permitted to claim R&D tax credits can deduct an extra 130% of qualifying costs from their profits on top of the 100% that can usually be deducted, meaning a total of 230% can be deducted.
How do I know if I can claim R&D tax credit?
Ask yourself the following questions:
- Does your research have the goal of achieving a technological advancement? This cannot just be small changes to aesthetics or something that does not actually offer an improvement.
- Does the work achieve an advance in overall scientific or technological knowledge? If people outside of the business cannot learn from the research, then it is unlikely it will qualify for R&D tax relief.
- Does the project address an uncertainty that an expert in the field of research couldn’t quickly and easily work out for themselves?
If this is the case, then the project may be eligible for a financial boost through R&D tax credit. However, there are many facets to consider, and sitting down with someone here at JDA will allow you to go through the fine details.
When has R&D tax credit been useful?
One example of research that would have been granted R&D tax credit was a study out of the University of Manchester. Andre Geim and Kostya Novoselov’s research into advanced material production resulted in the discovery of a material that is only a single atom thick yet is 300 times as strong as steel and can conduct heat and electricity extremely well. The market for this product is now estimated to be worth £170m by 2025!
Things to remember
If the business has outgrown the size requirements of the SME scheme, or because your firm is a subcontractor which is completing research on behalf of another company, then there is another potential R&D tax break that you could be awarded.
The research and development expenditure credit (RDEC) offers taxable credit at 12% of qualifying R&D costs for companies that are ineligible for the SME scheme.
HMRC will look to offset it to remove any existing tax liabilities the company has and when this can no longer be done, will pay the remaining balance as a cash credit to the company. This is entirely limited by PAYE and the national insurance liabilities of staff that have been included in the RDEC claim.
What should I do next?
While we hope that this blog has helped, R&D tax credit is complicated and can lead to confusion. Therefore, speaking to a member of the team could really help you along in the process of becoming more tax efficient.
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